Posted by Steve Wilcox on Wed, Jan 21, 2009 @ 08:30 AM
My 8-year old daughter is a cookie thief. You see, I caught her with her hand in the cookie jar the other day.
"How long have you been taking cookies without asking?"
"Uhhhh ... just today, Dad!"
Yeah right. I gave her a stern look even though I was a master cookie thief myself in my youth.
"Really Dad, I swear. This is my first time."
Of course, this wasn't her first cookie theft -- but it was the first time she was caught. Later that day, I was wondering how many cookies have been "stolen" in households throughout the U.S.? The answer is that it's impossible to know for certain because of the unknown number of cookie raids that have never been detected!
It's actually not that different from estimating fraud losses. In the 2008 Association of Certified Fraud Examiners' (ACFE) report, it states that the typical organization loses 7% of its annual revenues to fraud. Based on US GDP of just over $14 trillion, this translates into a staggering $990 billion in annual losses. But here is the caveat from the ACFE report:
Fraud, by its very nature, does not lend itself to being scientifically observed or measured in an accurate manner. One of the primary characteristics of fraud is that it is clandestine, or hidden; almost all fraud involves the attempted concealment of the crime.
Consequently, many instances of occupational fraud may go completely undetected. Further, even for those cases that do come to light, the full amount stolen may not be ascertainable, or the victim organization may decide not to report the theft to the authorities or the general public. As a result, determining the true breadth and depth of this form of crime is nearly impossible.
2008 ACFE Report to the Nation
On Occupational Fraud and Abuse
In the report, each fraud type was classified using the Uniform Occupational Fraud Classification System (commonly known as the Fraud Tree) into one of three major categories:
- Corruption
- Asset Misappropriation
- Fraudulent Statements
Fraudulent Disbursements (the set of yellow boxes at the bottom), a type of asset misappropriation, represented 2/3rds of all cases. And within this Fraudulent Disbursement branch, in terms of frequency, the top 3 frauds were AP related:
- Billing Schemes
- Check Tampering
- Expense Reimbursement
There is no question that fraud and specifically, AP Fraud, continues to be a real problem.
Now here is where it gets interesting ... How were the frauds detected? Here are the ACFE Fraud survey results:
I find it just remarkable that Internal Controls ranked a distant second ... and barely ahead of By Accident - in terms of detection! Sure, it's an improvement over the 2006 survey where Internal Controls ranked fourth but it's still terrible! Clearly, more effective internal controls are needed.
In my next blog entry, I'll talk about the 4 best practices that are critical to strengthening internal controls to manage risk while keeping a lid on costs.
-Rakesh Shukla
@rakesh170
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